SESSION 2

Question 1

2 forms of compensation for GPs

Answer 1

management fees + carried interest (carry)

Question 2

the maximum pledge of capital by LPs to a PE fund

Answer 2

committed capital

Question 3

the amt of capital called by the GPs as investments are identified and funding is required for them

Answer 3

contributed capital

also known as: capital call, takedown, or drawdown

Question 4

• equals contributed capital minus management fees

- amt of capital that is actually invested by the fund that can grow and produce returns

Answer 4

invested capital

Question 5

cumulation amt of contributed capital since fund inception

Answer 5

paid in capital

Question 6

defines the priority of payments betw GPs and LPs

Answer 6

waterfall agreement

Question 7

GPs not to receive any carried interest until the LPs have been paid back the entirety of their capital contributed to the fund

Answer 7

make whole (whole fund)

Question 8

determines the amt of carry based of the amt of capital contributed to a specific deal

Answer 8

deal-by-deal

Question 9

• used to measure income to GPs
• fees paid up front and carry from distributions arise later in the fund life
• assesses the time weighting of the upfront fees and the backend carry
• requires discount rate to complete calculation (assume 15% per yr)

Answer 9

NPV

Question 10

PE firms have ____ partners and ____ partners

Answer 10

limited ; general

Question 11

____ partners are institutional and individual investors who provide capital

Answer 11

limited

Question 12

____ partners manage the fund and may however be directly liable

Answer 12

general

Question 13

funds operate w ____ ____ (committees) which include LPs as members

Answer 13

advisory boards

Question 14

GPs usually contribute _% of the fund

Answer 14

1

Question 15

LP investors do not know precisely how their money will be put to work - GPs investment strategies are often described only in the broadest terms

Answer 15

blind pool

Question 16

investment vehicle in which assets are not freely transferable since GPs typically invest in illiquid assets

Answer 16

closed end fund

Question 17

contracts uniformly have a _____ schedule

• capital call for a set amt to be disbursed at closing (most often betw 10-30%)
• typically all funds are drawn down by beta 2nd and 4th anniversaries of the funds formation

Answer 17

take-down

Question 18

PE partnerships almost always have a ___ ____ of about 10 yrs

Answer 18

finite life

Question 19

many contracts have provisions for defaulting ___s who fail to meet their capital commitments

• GPs reserve the right to charge pay interest for late payments
• seize the ___’s stake, in whole / in part
• sue the ___

Answer 19

LPs

Question 20

____ can in some cases transfer their shares to other parties conditional upon approval of the GPs

Answer 20

LPs